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Proxy Adviser Disclosure Required

New SEC guidance requires the disclosure of any conflicts of interest when the organization furnishes voting advice.

Companies that recommend to investors how to vote in corporate elections must disclose conflicts of interest that could be viewed as affecting their advice, the U.S. Securities and Exchange Commission (SEC) said.

The SEC guidance released yesterday responds to concerns of the U.S. Chamber of Commerce and other critics of proxy advisers, whose recommendations can influence the outcome of elections on executive pay and boards of directors. Proxy advisers such as Institutional Shareholder Services Inc. also consult for some companies that are the subject of their voting recommendations.

The advisers must tell investors relying on their recommendations about any conflicts of interest when they furnish the advice, the guidance states. ISS has said its proxy analyses currently tell investors that the company could be a consulting client and states further information is available upon request.

“The proxy advisory firm must provide the recipient of the advice with disclosure that provides notice of the presence of a significant relationship or a material interest,” the SEC said in its guidance. “We do not believe that boilerplate language that such a relationship or interest may or may not exist provides such notice.”

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